India Call: Surges as banks refrain from lending on last day of FY20

MUMBAI – The inter-bank call money rate ended sharply above the Reserve Bank of India’s repo rate of 4.40% today because most banks refrained from lending funds on the last day of the financial year, retaining large cash holdings to dress up their balance sheets, dealers said.

The call rate for three-day loans ended at 4.80%, as against 2.50% on Monday for one-day loans.

Banks are closed on Wednesday for annual closing of accounts, and Indian money markets are closed on Thursday on account of Ram Navami.

Usually, banks are reluctant to borrow or lend funds in the inter-bank call market at the year-end.

On account of low participation, deals worth 24.75 bln rupees were struck in three-day segment at weighted average rate of 4.83% as against 35.04 bln rupees on Monday.

The inter-bank call money also remained above the repo rate for most of the day because of lower market participation owing to the 21-day lockdown imposed by the government to contain the spread of coronavirus disease.

With financial markets having taken a severe beating because of concern over the economic impact of the coronavirus pandemic, the RBI has pulled out all stops to infuse liquidity into the banking system, which is already in surplus.

The central bank has announced long-term repo operations, bond purchases under open market operations and offered 1 trln rupees through two rounds of 16-day repos.

Currently, liquidity in the banking system is estimated to be in a surplus of 4.84 trln rupees.

Following are the highlights of the day:

* The weighted average call rate was 4.29%, compared with 4.23% on Monday

* TREP (Triparty Repo) weighted average rate was 0.01%, against 0.48% on Monday

MUMBAI – The inter-bank call money rate was above the repo rate of 4.40% today because most banks refrained from lending funds on the last day of the financial year, retaining large cash holdings to dress up their balance sheets, dealers said.

At 0940 IST, the three-day call money rate was at 4.80%, compared with 2.50% at close on Monday for one-day loans.

Banks are closed on Wednesday for annual closing of accounts, and Indian money markets are closed Thursday on account of Ram Navami.

“This always happens on the last day of the year, some banks will not lend in call because they want to window dress their books.” a dealer with a state-owned bank said.

The call rate may also remain above the repo rate during the day due to firm demand for funds because of lower market participation owing to the lockdown imposed by the government.

With financial markets having taken a severe beating because of concerns over the economic impact of coronavirus pandemic, the RBI is pulling out all stops to infuse liquidity in a banking system, which is already swimming in surplus liquidity.

The central bank has announced long-term repo operations, bond purchases under open market operations and offered 1 trln rupees through two rounds of 16-day repos.

Liquidity in the banking system is estimated to be in a surplus of 4.84 trln rupees.